The mood darkened after Beijing ordered the United States to close its consulate in Chengdu, in retaliation for being ordered to close its consulate in Houston earlier this week.
“An escalation in US-China tensions that could have extremely negative consequences for stock leadership, especially around US tech giants, is worrying,” said international market analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp.
“More so, if President Trump pulls the free pass in China, things could get pretty ugly over the weekend, as traders will have no choice but to reduce the risk.”
Unsurprisingly, Chinese blue chips led the declines, falling 4.4%, erasing a week of gains.
European stocks were on track for their worst day in a month, with the pan-region Euro Stoxx 50 down 1.9%.
Tech stocks led losses, following their US peers overnight, while the China-sensitive commodities sector lost 2.4%.
The largest MSCI index of Asia-Pacific stocks outside of Japan fell 1.9%. Tokyo was closed for a holiday, but futures on Nikkei were trading 1% less.
Futures contracts on E-Mini for the S&P 500 fell 0.8%.
(GRAPHIC: US-Chinese tensions – here)
Investors took little comfort in the purchasing managers index (PMI) data which showed that euro area trade activity rebounded to growth in July, as more and more parts of the l economy blocked to reduce the spread of coronavirus have reopened.
British businesses experienced the fastest recovery in five years in July, and data for the United States follows later today.
The market’s stubborn optimism about the economic recovery was called into question on Thursday by data showing that the number of Americans claiming unemployment benefits unexpectedly rose last week for the first time in nearly four months.
The euro was at $ 1.16020, close to its highest level since October 2018, after experiencing a winning streak throughout July, as the European Union adopted a stimulus fund. of 750 billion euros restored confidence.
The yen rose 0.6% to 106.25, its highest since June 23.
The Chinese yuan, a barometer of Sino-US tensions, looks set for its worst week in three months. It was down 0.2% to 7.0276 per dollar in the offshore market.
Italy’s 10-year bond yield was flat at around 1.05%, holding near Thursday’s 4-1 / 2-month low of 1.04%. The yield on the German Bund edged down on Friday to -0.49%.
The combination of ultra-loose currency and negative real bond yields has enhanced the attractiveness of gold, which earns no return but is limited by supply.
The precious metal was last at $ 1,894.23 an ounce for its biggest weekly gain in more than three months as it held near a nine-year high.
RBC Capital Markets analysts noted that holdings of gold-backed exchange traded products had already reached record highs.
“The level of uncertainty of COVID-19, low and negative real and nominal rates, politics and geopolitics have driven up gold prices and pushed allocations among investors even higher,” they said. stated in a note.
Oil prices ended the week on a flat note, failing to maintain a five-month high as worries about global demand offset the weak US dollar.
Brent crude fell 1 cent to $ 43.30 a barrel, while US West Texas Intermediate (WTI) crude rose 1 cent to $ 41.08.
Graphic by Vidya Ranganathan; Editing by Toby Chopra
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